“Curiouser and curiouser!” cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English). There is, I trust, a lot of questionable English being spoken at the moment and most of it in four-letter expletives, for the implosion of FTX has done more than to lay bare what looks to be another one of those spasmodic WorldCom, Enron or MF Global moments. FTX has called into question an entire worldview held by some to demonstrate the shape of the future while to others it was and remains one huge Ponzi scheme.

The weekend press has been replete with reporting on the life and times of Sam Bankman-Fried and comment on how and why FTX has gone up in smoke. All of a sudden everybody is specialist on the subject and, behold, one can lay most of the articles on top of one another and in mathematical terms they are pretty much congruent. How many billions of clients’ funds were syphoned off into Alameda Research in order to cover trading losses has yet to be established and there is no doubt an active two-way market in how many years SBF will spend in jail. The fact is that people see what they want to see, just as they did in the case of Enron or when buying highly structured mortgage products, and when the blood is up, they wouldn’t have listened to anybody who might have seen through the squeaky-clean image of the now collapsed crypto exchange.

Large banks have for the past year or two been busily polishing their own crypto currency credentials as they have sat there watching a bunch of geeks in shorts and t-shirts getting rich beyond wildest dreams and SBF, with his Effective Altruism has been the perfect poster boy. So much money was lying around waiting to be packed into the P&L and it was not right to try to get a seat at the table. Please don’t get me wrong; there is nothing inherently wrong with the concept of crypto currencies but there’s also nothing wrong with buying and planting tulips. That is until hubris takes over.

All the while, in the same week in which the crypto bubble was deflating by a further degree, the US’s political landscape underwent its own remarkable events. In the middle of the highest inflationary environment in decades and with possibly the most unpopular and ineffective President since Jimmy Carter occupying the White House, the GOP manifestly failed to make any of the significant gains in the midterm elections which would be common in even the most benign of political preconditions. As unrelated as the election results and the collapse of the crypto coin market might appear, they are in some respects very similar. And the key word is “disruptor”.

The age of the disruptor is ending. For a number of years – maybe as many or maybe as few as 10 – being the disruptor has been the way to gather followers. I am not a theologian, and I would be the last to purport to be one although I did learn in my study of 20th century politics that great ideological movements such as Marxism-Leninism or Nazism cannot and will not even try to coexist with religion. They are by their nature and according to the law of the survival of the fittest obliged to supress competing ideologies of which organised religion is one. But folks love to believe in a higher power. Trumpism and crypto in their own ways, both as archetypal disruptors, fit that bill. And both are in trouble.

Back in the late 1990s, I worked with a guy by the name of David McWilliams. We met at BNP in London. I had until then spent my career working in US dollar and Deutsche Mark bonds, but it was at BNP – this was before the bank had bought Paribas and BNP’s perfectly decent bond operation was pretty uniformly put out to grass – that I gained a modest level of expertise in all the other pre-currency union European currencies and where I also went through the creation and introduction of the euro. At some point McWilliams, ex-Central Bank of Ireland and UBS economist and now a highly recognised figure in the Irish financial journalism establishment, appeared on the scene. His thinking was totally remote from that of the French economists who loyally toed the party line, and he asked questions which in the run-up to the introduction of the single currency, no Frenchman’s job was worth. His brief tenure at BNP coincided with the Asian debt crisis of 1997.

Many questions were being asked with respect to the risks inherent in HSBC and Standard Chartered Bank, both of which had huge exposure to the crisis hit areas of Southeast Asia. While most of the market was quaking in its boots, McWilliams calmy observed that when the barbarians invade the valley, the peasants flee to the castle on the hill. And to him the two banks were the castle on the hill. He predicted that the cost of funding of the two would not rise in the crisis but fall as local depositors would place their faith in them above local institutions. And so it was. McWilliams was on the button. He later rose to prominence by forecasting the collapse of the “Celtic Tiger” period of Irish economic expansion and by writing at the time: “The case is clear: an economically challenged government, perniciously influenced by the interests of the housing lobby, blew it. The entire Irish episode will be studied internationally in years to come as an example of how not to do things.” He’s a very clever and perceptive boy.

But the bit which stuck was the one about the peasants and the castle on the hill. US voters have chosen not to chase Trump the Disruptor and to stick with the uninspired and boring. Not because they like Biden or the Democrats but because they have less stomach for the currently presented alternative. When times are tough, and the future feels uncertain it is easy to opt against change. Disruption as we have experienced it – I shall desist from using the term “enjoyed” – during the past years is, so I suspect, a pleasure to be pursued when times are good, the economy is powering along, money is plentiful and when risks with the unknown can be afforded to be taken.

Cathie Wood’s ARK ETF has marketed itself on seeking out and being supportive of disruptors. The list of such disruptors is long and littered with failures. If one takes the time to drill down into most formerly high-profile tech funds, one finds that the bulk of performance has come from the generally substantial positions held in Elon Musk’s Tesla. The decline and fall of Elizabeth Holmes and her Theranos business demonstrated what happens when even the smartest con themselves into believing that disruptive technology is about to make something possible which a touch of rational thought would tell one it is not. That is what disruption is about and why it is frequently anchored on unsubstantiated belief.

Donald Trump’s famously unsubstantiated claims of electoral fraud are in many respects built on the same foundations as the belief that Bitcoin and its friends and neighbours are about to recover and that everybody who hangs in there will end up being as rich as they once had dreamt of. And in both cases the faith is waning. Investment assets – and I continue not to consider Bitcoin as an asset – have a marginal value, a utilitarian price where the return, as small as it may be, becomes commensurate to the risk. Thus, it is that serious businesses even in bankruptcy have a discernible value. There is no such thing as a bad asset, just a wrong price. What then is the right price for bitcoin?

Is it $100,000? Or $64,000, its price a year ago? Or is it $16,000 where it is right now? Or maybe $13,000 which is where JP Morgan’s crypto team have pinned it? Or is it US$ 3,000? Or is it zero? Bitcoin has a price but most probably no value. Its greatest weakness is to be seen in nearly every publication which discusses it as most articles are accompanied by a picture of a minted metal coin bearing a capital B with a double strike through it. There is no coin with a B on it. There never was and there never will be. Bitcoin is virtual and no one will ever be able to hold it and put it in their pocket any more than they can a megabyte. Yet every day we see an image of bitcoin which does not exist, but which is needed for people to be able to relate to it. A physical representation of bitcoin is deception of the first order geared to those who want to be deceived.

The second of the Lord’s Ten Commandments instructs us to make no idols, a rule which Jews and Muslims take literally. Christianity has for its own purposes created the image of an old man with flowing robes and a grey beard. And the faith of Bitcoin has created an image of a gold-coloured coin with a big B. I digress.

Could it be that the age of disruption for disruption’s sake has hit the buffers, that both society and markets are in need of a period of calm and introspection? Or is it perhaps that with the cost-of-living crisis on one hand and with the risks of conflict in Taiwan being added to that in Ukraine with all the inherent disruptions of their own, the appetite to go adventuring elsewhere is fading fast? If Bankman-Fried, one of the most admired characters in the crypto space, turns out to be a fraud, what hope for the rest of them? If the crypto winter is here to stay, then maybe it’s time to shelve one’s hope of the great restoration of the crypto boom, to cut one’s losses and to hang onto what is left. That FTX will have destroyed many people’s core savings, especially amongst those who can least afford to lose it, is more than just a regulatory matter. WorldCom was regulated. As was Enron. How about Wirecard, a DAX stock? Or Lehman Brothers? If regulated entities can go spectacularly belly up with a recovery rate of zero, why go fiddling about in unregulated markets?

The call for regulation of the cryptosphere is all over. Regulate it and it ceases to be what it is. The best way not to lose money in cryptos, be it through fraud or general overpricing, is not to get involved. Decades before anybody had ever even dreamt of decentralised currencies, I had a sign over my desk once which read “If in doubt, get out”.

Meanwhile, keep an eye out for the name of Gary Gensler, chairman of the SEC. Gensler, another former Goldman Sachs partner, is a died-in-the-wool Democrat party animal and party-political strands can easily be traced to SBF’s parents, both of whom are liberal law professors. He has long called for some form of regulatory oversight of the cryptosphere but has manifestly failed to make any progress in that direction. Questions will surely be asked about whether he might have been looking the other way? I sincerely doubt that anything which is thrown at him will stick but it will surely still leave visible stains.

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